04 Jun 09 e-learning – India as the preferred offshoring destination

With training budgets slumping, and the growing need for maintaining a highly skilled workforce, companies are increasingly turning to incorporating e-learning as a part of their training initiatives. But maintaining e-learning systems within the organization equals more costs. The solution? Outsource, and don’t look back. More companies, realizing cost advantages, are moving from dealing with US e-learning service providers to directly approaching Indian companies.

Key components offshored
e-learning as an industry has several processes that can be outsourced. The various services can be grouped into the following buckets – content (development and repurposing), technology (tools to create, deliver and support content), and services (consulting and support services).

Content: Content development and repurposing are largely offshored, including instructional and visual design, programming, and content customization. Companies may decide to offshore pieces of these services, or overtime, by building trust and confidence with their partners, may send their entire content development process to their offshore partners.

Technology: With respect to technology and services, buyers may choose their LMS (Learning Management System) partners from international as well as Indian providers. LMS hosting and administration services are also offshored, as these are regarded as back-end support functions which suit offshoring well. Certain technology and services related components involving ad-hoc coding and testing are offshored as well.

Services: Among higher value services, training needs analysis and strategic decision making, storyboarding and curriculum design are either done in-house, oroutsourced to an international service provider, but not commonly offshored to India. Cultural understanding and knowledge are required for storyboarding services, and Indian service providers cite these reasons for not undertaking them. Also, consulting services require anonshore presence. The larger providers are trying to counter this by operating via a dual-shore presence, with local resources bridging the perceived cultural differences in the market.

Targeted user segments
The corporate buyers of e-learning (including verticals such as BFSI, IT, telecom, pharma & healthcare) are targeted most aggressively by Indian providers, followed by the education segment (K-12 through to higher education, and publishing) and the government (including public administration and education).

Service providers of all sizes consider the corporate market to be the easiest to cater to, 91% of whom focus on this user segment. The education segment requires a high level of subject knowledge and ability to handle larger volumes of work, which few providers have. The government segment is targeted the least by Indian roviders, as there are several obstacles in engaging with government agencies, especially in the US. Through our interactions with the industry, we believe the focus on the education segment will rise in the foreseeable future, with governments across nations investing heavily in public education.

India as the preferred offshoring destination
The Indian e-learning industry exploits most of the advantages that the country has in favor of its outsourcing industry. India has a large pool of English-speaking graduates, and specialized talent pools in engineering, IT and management. The country has also maintained its cost advantages over most other nations. The fallout of these two factors is that India has the scalability advantage over certain other countries when it comes to handling large projects.

A number of countries have come up as contenders to India for a share of the e-learning offshoring pie. Each has relative strengths and weaknesses against India, makingoffshoring strategies and the overall supply chain all the more complex. China, Singapore, Malaysia and the Philippines are the major Asian countries, apart from India, that take on e-learning projects.

The graph maps out the competitive advantages / disadvantages that popular offshoring destinations have developed in the e-learning industry. These include the quality of relevant resource pools in the country, the relative cost advantage for operations, the scalability factor, and the industry maturity in terms of the number of years that players in the country have taken on offshored e-learning assignments. ValueNotes then arrived at an overall assessment of the country, which indicates thelevel of threat that these destinations pose for India. From the graph, it is evident that India possesses the maximum competitive advantage as an e-learning offshoring destination.

Steady growth till 2012
ValueNotes estimates that revenues from the Indian e-l earning offshoring industry stand at approximately USD341 million at the end of calendar year 2008. While the economic recession will impact the growth in the industry for the next 6-8 quarters, the market will recoup and grow much faster until 2012. Taking these factors into account, our calculations place the e-learning offshoring industry to grow at a CAGR of 15% till CY12.

We estimate the market size for offshoring e-learning services to India to touch $603 million by 2012.

Indian service provider landscape
One of the first providers to focus exclusively on thee-learning offshoring opportunity was Tata Interactive Systems. For almost a decade, the company had a clear head start. Following its success, large BPOs and KPOs entered the market, followed closely by publishers.

The market saw an explosive growth after the year 2000, when companies from the IT sector entered the e-learning offshoring market. Interestingly, most of the pure play providers are clustered around this time frame.

Today, there are well over a hundred Indian companies who claim to provide e-learning services. The Indian e-learning outsourcing industry consists of both, third-party providers and offshore delivery centers of international providers and consulting firms. We estimate that there are no more than 35 e-learning providers who have more than 100 employees, and over a hundred smaller niche providers.

Industry structure
We have grouped the players in the Indian market based on their service capabilities and maturity – the number of years that they have been in the industry, the depth and range of their service lines, the user segments that they cater to, their relative position on the value chain, the level of scale offered, and their front end capabilities. Our analysis has thrown up 4 distinct groups, including the market leaders in the industry – the pioneers. It is their movements that will determine the strategic direction for the rest of the players in the industry in the next 4 years.

Service Providers

Providers (a sample)

Typical Characteristics

Pioneers

Tata Interactive Systems, NIIT

· High scalability – greater than 500 employees
· Early mover advantage
· Multi-country presence and delivery capability
· Service portfolio at par with international providers
· Few providers in this group

Challengers

Brainvisa, Genpact, etc

· Employee base of 200-500
· Offer comprehensive services to multiple segments internationally
· Not more than 15-20 companies of this nature in the market

Contenders

MPS eServices, Upside Learning, etc

· Employee base typically between 100-200
· Mostly pure play and small tech companies
· About 30 companies of this nature in the industry

Specialists

E.I. Design, Sudiksha Learning, etc

· Employee base of up to 100
· Mostly pure play and specialized IT companies
· More than 100 providers of this nature in the market

In the next 4 years, close to 47% of the Indian service providers that ValueNotes interviewed, plan to target the US more aggressively, 24% will focus on the UK, with countries such as Australia, Singapore and the UAE also evoking interest. Interestingly, 47% of providers are exploring India as a market and plan to release products for the domestic market in the near future.

Aerospace, aviation, marine and oil & gas are the upcoming corporate user segments: Service providers want to target the BFSI, IT, pharma & healthcare and retail sectors within corporate, as part of their future plans. Upcoming sectors include aerospace, aviation, marine, and oil & gas, as they suit the e-learning format for training purposes.

Acquisitions and strategic partnerships: Acquisitions in the industry will be more in the US & UK (along with Europe), to gain onshore marketing and/or delivery capabilities. Companies looking to scale up and add specialized skills to their portfolio will also look to acquire niche players in the industry. There is, however, more scope for strategic partnerships among providers, both domestic and cross-border, in a bid to offer comprehensive services to the international e-learning buyer community.